New Delhi: Stock market volatility forced investors across the world to pull out $5 billion from emerging market equity funds last week, including over $2 billion from funds focused on the BRIC markets.
China accounted for more than half the total outflow from BRIC, according to international fund tracking firm EPFR Global.
“With subprime and global credit fears being fuelled by almost daily news of fresh write-downs in the financial sector and evidence mounting that the US economy will slow going into next year, investors retreated from equity funds during the second week of November and shifted to the relative safety of money market funds,” EPFR said in its weekly report.
During the second week of November, emerging market equity funds posted a net outflow of $5.58 billion, while those focused on developed markets saw $5.07 flowing out.
Nearly all the outflow from the developed and emerging markets appears to have been absorbed by the money market funds. According to EPFR, the money market funds recorded a net inflow of $10.1 billion during the week, taking their total inflow since the beginning of August to $100 billion.
“Money market funds currently offer two things that investors like. They are very liquid, which allows investors to move rapidly back into markets where they see value, and most of them come with an implicit guarantee that you wont lose any money something that’s very attractive in the current investment climate,” EPFR Global Analyst Cameron Brandt said.
Collectively, emerging markets equity funds saw their worst week in dollar terms since March this year, EPFR said, adding that daily flows turned negative on 8 November after 12 consecutive days of net inflows.
“Investors also took a step back from the BRIC’s theme, both collectively and at the individual market level. China Country Funds were hit particularly hard as the prospect of tighter global and domestic credit played on fears that the Chinese equity markets are a bubble waiting to be pricked,” EPFR said.
China funds recorded an outflow of $1.1 billion, while collectively the BRIC funds posted a net outflow of $2.11 billion. Among developed markets, investors pulled money out of Japan equity funds for the 33rd straight week, taking year-to-date outflow to $15 billion.
EPFR did not disclose specific outflow figures for India-focused funds. According to information available with Sebi, foreign institutional investors have been net sellers in five trading sessions so far this month. They have made net purchases on six days.
In the first week of November, FIIs were net sellers of shares worth $300 million, but in the second week they pumped in a net inflow of around 150 million dollars.
However, most purchases were made on 14-15 November, when the Sensex soared over 1,100 points with a net FII inflow of $430 million.
Indian equity markets have seen a net FII inflow of over $17 billion so far in 2007, a record in any year.
According to EPFR, emerging market equity funds are still sitting on a record year-to-date net inflow of $35.6 billion, despite the massive outflow last week.